Yearly Archives: 2017
The Greeks: Theta
Martin Noël
This week, we will look at another Greek variable: theta. Theta measures the change in the price of an option following a change in the time remaining to its expiration. You will recall that an option’s premium has two components: intrinsic value and time value. But since an option that has reached expiration has run out of...
The Greeks: Gamma
Martin Noël
Our last article showed how delta could help predict the future value of options following a change in the price of the underlying asset. We also learned that delta gives an indication of the equivalent stock position (ESP) on the underlying asset. Gamma Gamma measures the change in the value of delta relative to a change in...
Will Volatility Revert to the Mean?
Hans Albrecht
A crucial foundation for understanding how option volatility works is the concept of ‘mean reversion’. For a period, stocks can go up and stay up, and they can conversely go down and stay down. But option pricing will generally have trouble staying high or low for an extended length of time. So why do prices eventually move...
The Greeks: Delta
Martin Noël
In the last few articles, we have seen that there are several variables that have an impact on the value of options. This table illustrates how an increase in one of the variables affects the values of call and put options. As you can see, with all other things being equal, when one of the variables moves, we should expect the...
Term Structure of Implied Volatility
Martin Noël
Changes in implied volatility provide information on options market participants’ expectations regarding future fluctuations in returns on a specific stock. For the purposes of this discussion, we will analyze volatility in the stock price of the Great Canadian Gaming Corporation (GC), which closed at $23.79 on February 24,...
A Wall of Worry
Jason Ayres
There’s an old saying that “markets climb a wall of worry and slide down a slope of hope”. I think many would agree that although both U.S. and Canadian equities continue climb, there’s no shortage of apprehension when discussing how much further the markets can go with out some sort of a correction. One...
Looking for a Bond Substitute?
Richard Croft
Despite the hype around the Trump Rally, some stocks have been left behind. Notable among the group; BCE Inc. (TMX: symbol: BCE) which closed last Friday at $58.28. Well off the highs of August 2016 when the stock traded above $63 per share. A growth investor might consider that tragic. However, most investors see this...
Dividend Impact on Options’ Intrinsic Value
Martin Noël
As we mentioned in earlier articles, an option’s intrinsic value is the premium value related to the difference between the stock’s price and the strike on the option. VIoa = max(S – X; 0) VIov = max(X – S; 0) In the previous article, we saw that the evolution of interest rates had an impact on the actual value...
Synthetic Stock Positions Within Registered Accounts
Richard Croft
As the name suggests, a synthetic stock position is equivalent to a long stock position. Similar risk reward parameters but with some structural advantages for investors who want to utilize the strategy within registered accounts. In this column, we will focus on Canadian bank stocks. What else is new! Like it or not...
Is the Extreme Bullish Speculation in Oil a Warning?
Patrick Ceresna
The OPEC agreement to cut production back in late 2016 ushered in a further wave of enthusiasm that pushed oil and the energy sector higher, with the belief that the oil bear market was over and long gone. Coupled with the Trump reflation trade enthusiasm, we have witnessed a very strong finish in 2016. The price of WTI oil...
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